Introduction to Economics (Opportunity Cost)

What does the economic concept of opportunity cost represent?

• The monetary price of a chosen item.

• The total sum of all possible alternatives.

• The value of the next best alternative that was not chosen.

• The cost of producing a good or service.

Jenny decides to go on a third date with Adam. If her next best alternative was having breakfast with her sister, what is the opportunity cost of her date with Adam?

• The cost of her Uber ride and Chai Tea Latte.

• The romance and laughter she experiences on the date.

• The value of having breakfast with her sister.

• The time she spends waiting for Adam.

What is the trade-off involved when a coffee shop owner decides to install fire sprinklers?

• Increased safety for customers versus higher product costs.

• Lower insurance premiums versus reduced aesthetic appeal.

• Faster service versus a smaller menu.

• More customers versus less seating space.

What is a potential consequence of more stringent building codes for new businesses?

• Increased brand recognition for new businesses.

• A higher cost for opening new businesses, potentially leading to fewer new businesses.

• Shorter lines and improved customer experience.

• Greater diversification of business types in the area.

Which of the following is TRUE about opportunity costs?

• An individual’s opportunity cost decreases when an alternative becomes more valuable.

• An individual’s opportunity cost increases when the next best alternative becomes more valuable.

Answer explanation

• If the alternative or next best alternative is become more attractive this results in a higher opportunity cost.

Which of the following best describes the trade-offs involved in increasing animal welfare requirements for egg-laying chickens?

• Increasing animal welfare requirements will decrease the cost of eggs

• Increasing animal welfare requirements will increase the cost of eggs

• There are no tradeoffs.

Answer explanation

Increasing animal welfare results in a higher cost od production for the farmer and therefore more expensive eggs for consumers.

You purchased non-refundable plane tickets to travel to Tampa this weekend for $200. You estimate that the trip to Tampa would give you $300 worth of enjoyment. Your friend just called and won 2 free concert tickets for this weekend to see your favorite artist and wants to know if you will join them. What is the minimum amount you can value the concert at to cancel your travel plans to Tampa?

• $1

• $201

• $301

• $501

• You should not cancel your travel plans, since your tickets are non-refundable.

Answer explanation

The $200 plane ticket is non‑refundable, which means the money is already gone no matter what you choose. Because it cannot be recovered, it is a sunk cost and should not affect your decision.

What does matter is comparing the benefit of going to Tampa versus the benefit of going to the concert.

• Value of Tampa trip: $300

• Value of concert: unknown — call it X

You should choose the option that gives you the higher enjoyment value.

You will cancel the Tampa trip only if:

X>300

So the minimum value that makes you switch is $301.

That’s why c. $301 is correct.